Industries Fueled by Foreign Direct Investment in Australia

It is no secret that Australia is one of the most promising investment destinations. The country is home to an extremely strong economy boosted by a solid export market and various domestic industries. Therefore, it’s no surprise foreign investors are largely interested in the South-Pacific nation. Foreign investors are betting on the continued growth of Australia’s powerhouse economy and they are reaping the benefits.

A government that is politically stable and open to trade, combined with the world’s 14th highest GDP, Australia is a force that can’t be ignored. Foreign investment has grown Australia’s economy and innovated key industries to compete at a global level. Major investments are reviewed by the Foreign Investment Review Board (FIRB). The agency aligns investments with national interests and community impacts. Read on to find out more about some of the key industries fueled by foreign direct investment in Australia.

Foreign Direct Investment in Australia

Foreign direct investment (FDI) in Australia totalled US$62 billion in 2018. That’s an impressive 40% increase from 2017. Such numbers have cemented Australia’s place in the world’s top ten FDI destinations.

The 5 top investing countries, with their 2018 investment amounts are:

United States: AU$939.5 billion

United Kingdom: AU$574.8 billion

Belgium: AU$316.9 billion

Japan: AU$229.3 billion

Hong Kong (SAR of China): AU$118.8 billion

Next, we will look at 4 of Australia’s top industries driven by foreign direct investment. These four sectors receive just over 60% of all FDI received into Australia.

#1: Mining and Quarrying

Mining largely dominates FDI flows as it received 37.8% of all FDI into Australia in 2018.

Australia’s most important sector for FDI drew in a whopping AU$365.5 billion dollars in 2018. That’s a strong increase of 6.5% from 2017. Mining largely dominates FDI flows as it received 37.8% of all FDI into Australia in 2018. 5.9% of businesses in the mining industry are foreign owned, compared to the national average of 0.5%. These statistics demonstrate the degree offoreign interest in the industry.

A large proportion of the world’s lithium reserves are found in Australia. This presents a business opportunity for firms to mine and produce high-value products in Australia. Given the increasing demand for lithium, due to its use in smartphones and electric vehicles, now is a great time to consider an investment. Australia currently dominates the mining part of the supply chain but lacks presence in refining activities, electrochemical and cell production, and battery assembly. If Australia were to develop a battery assembly industry, revenue alone could exceed AU$50 billion and create 100,000 jobs. Historically, Australia has exported raw materials only to be transformed into high-value products abroad. Firms that invest in further vertical integration will create more value from their mining activities and benefit from profits and market share.

#2: Manufacturing

The manufacturing sector received 11.1% of total FDI in 2018, at AU$107.7 billion. The sector covers a large number of industries. It is a fast-growing export sector, particularly in advanced manufacturing. The manufacturing sector is transforming, both the products it’s producing and the staff it employs. Mass production is shifting to more specialised, advanced products. Likewise, high-skilled workers are employed to work innovative technology and developed research and development strategies.

Research is an incredibly important part of sustaining a modern and competitive manufacturing industry. Automation, new materials and processes create high-value products that are demanded domestically and abroad. Likewise, Australia has an educated workforce with strengths in technology and engineering. Australia’s proximity to key Asian markets is a strength for the industry, as well as its first-hand access to key natural resources. International firms invested in advanced manufacturing industries in Australia include Boeing, Toyota and Siemens.

#3: Financial and Insurance Activities

Financial and insurance activities represent the largest source of total gross value added in Australia.

This sector is perhaps the most exciting, due to its incredible FDI growth of 45.6% between 2017 and 2018. The industry is on track to overtake manufacturing to become the second biggest recipient of FDI in Australia in 2020. In 2018, AU$107.5 billion was invested in the industry from abroad, accounting for 11.1% of total FDI flows. The sector represents the largest source of total gross value added in Australia.

Australia’s strategic geographical location in the centre of the Asia-Pacific region has helped it to become a leading financial hub. Promising wealth management, investment banking and infrastructure financing services have positioned Australia’s financial sector as innovative and sophisticated. Highly developed financial markets have garnered the attention of domestic and foreign investors, as financial services are attractive for export.

Likewise, Australia’s industry is competitive and well regulated. The market for general and life insurance is diversified by national and international competitors. Some international firms in the market included Allianz, Zurich, AXA, AON and Marsh. Fintech is another growing area within financial services, gaining investment within financial security and insurance areas.

#4: Accommodation and Food Service Activities

Another industry worth mentioning for its incredible growth of 28.6% between 2017 and 2018, this is one industry investors should take note of. Attracting a noticeably smaller amount of FDI (AU$8.7 billion) in 2018 compared to other industries, it’s growth should be noticed as huge potential. Increasing tourist numbers is driving investment in Australia. The number of accommodation rooms has grown by over 23,000 rooms between 2011 and 2018. Project pipelines have nearly another 53,000 rooms planned for completion by 2028.

Data from 2007-2017 show hotels provided the best investment, compared to other property types. A great risk-return profile combined with high returns is encouraging investors abroad to invest in Australia’s tourism industry. Occupancy, revenue per room and nights sold are all expected to increase in 2019. Two-thirds of the investment in Australia’s hotel industry came for foreign investors in 2018. There is substantial interest from Asian players such as Singapore, Malaysia, Hong Kong and India, as well as the Middle East and the United Kingdom.

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